BLOG POST

Nuclear Stumbles over High Costs

Today, Constellation Energy withdrew its proposal to build a third nuclear reactor at the Calvert Cliffs nuclear power facility in Maryland. Although the U.S. Department of Energy was in the process of awarding Constellation a loan guarantee to help finance construction of the new reactor, Constellation called the terms of the deal “unworkable.”

To anyone following the so-called “nuclear renaissance,” this stumble should not come as a surprise. As Frontier Group has documented, nuclear reactor construction is costlyslow, and financially risky.

Constellation decided not to go forward because the cost of building a new reactor is too large, and the federal government refused to take on all of the risk.

Specifically, the Office of Management and Budget (OMB) required the company to pay a fee to account for the risk that taxpayers would be exposed to as a condition for awarding the loan guarantee. If Constellation were to fail and default on the loan, taxpayers would be on the hook for the money. Accordingly, OMB required Constellation to pay 5 to 12 percent of the loan amount. 

Constellation responded that this fee was "unreasonably burdensome and would create unacceptable risks and costs for our company." An anonymous Obama administration official told the Washington Post that, “We want to see this industry go forward, but we also have a duty to protect the taxpayers' money.”

Given the high risk of default, the Obama administration was being generous. In March, the Congressional Budget Office found that “it would be difficult to set the fee so as to entirely cover the estimated cost to the government,” especially because the cost of a loan guarantee to the taxpayer could actually reach 30 percent of the loan guarantee, or more.

Today, we found out that Constellation – or any other merchant power generator – can’t even take on a small fraction of the risk of a federal loan guarantee for a new nuclear reactor.

It is time for Maryland – and the rest of the nation – to turn to better solutions in the fight against global warming – energy efficiency and clean, renewable energy.